Where are assessment and appeal policies headed?

Where are assessment and appeal policies headed?

Summary: 2020
begins with a ruling in a lawsuit over taxing body appeals of assessed values.
What does that mean for purchasers who are often subject to what many term a
“newcomer’s tax”?

It is a familiar tale:
Pennsylvania allows counties to assess properties under a base-year system and
it can be many years before subsequent reassessments take place. As time goes on, gaps develop between sales prices
and assessed values. Taxing bodies then
appeal sales that meet certain criteria, seeking to have values raised to, or
near, sales price. Buyers are caught off
guard and are then faced with the possibility of higher tax bills and
frustrated since similar properties are not appealed because they were not for
sale.

We’ve documented data on
appeals in Allegheny County for several years since the 2013 reassessment. Last year the county’s Board of Assessment
Appeals and Review (BPAAR) heard over 6,000 appeals brought by owners and
taxing bodies.

One property appealed in 2016
had a 2012 base-year assessment of $464,700.
The property was bought in 2015 for $750,000. The assessed value was appealed by Pittsburgh
Public Schools (PPS) and a BPAAR decision increased its assessed value to
$690,000. That decision was then
appealed by the buyers to the Board of Viewers (BOV), where it is currently
pending.

Not long after a class-action
lawsuit involving the buyers was brought against Allegheny County, the City of
Pittsburgh, PPS and BPAAR. This was done
on behalf of “all property owners in Allegheny County whose real estate tax
assessment value was increased for the tax years 2014-2016 … due to a tax
assessment appeal initiated by either Allegheny County, City of Pittsburgh or
Pittsburgh Public Schools, where the decision was reached on the basis of
current market value and not based on an addition or removal of improvements on
the subject property or physical changes in the land of the subject property.”

Allegheny County Common Pleas
Court delivered a mixed verdict in March 2018.
It cited language from the General County Assessment law that taxing
bodies can appeal “in the same manner, subject to the same procedure, and with
like effect, as if such appeal were taken by a [taxpayer] with respect to his
property.” The ruling noted that the
county’s administrative code and BPAAR rules of procedure had language that was
contradictory (and not followed in appeal practices) to the General County
Assessment Law and Second Class County Assessment Law about the ability of
taxing bodies to utilize current market value in appeal proceedings.

Upon appeal, Commonwealth
Court upheld the decision in August 2019 with a modification that the
plaintiffs did not exhaust all remedies available under the Second Class County
Assessment Law, specifically the BOV appeal which could result in a lower
assessed value. The opinion noted “a
party may not seek judicial resolution of a dispute until he or she has
exhausted available statutory or administrative remedies.”

The Supreme Court denied the
petition for allowance of appeal of the Commonwealth Court ruling with a one
sentence ruling in January 2020.

To prevent taxing bodies from
appealing recent sales, why not ban the practice? In the March 2018 ruling the court noted
“taxing bodies are simply taking appeals where there exists readily available
evidence to prove their case … they are doing what most law students are
trained to do in law school.” Four years
earlier we noted in a Policy Brief
that “properties that have sold recently are the only ones for which the

[taxing body]

can actually prove assessments provided by the county are far
below true market value.” Properties
that had not sold could go up in value “but on what grounds can the [taxing
body] appeal their assessments?” we asked.

The General Assembly
attempted to stop taxing body appeals on sales prices over a decade ago (the
legislation was vetoed) and is trying again.
The legislation would prohibit appeals based on sales price alone but
would allow for taxing body appeals when there is a reassessment, a division of
the parcel or a change to its use.

How are potential buyers to
be made aware that if they purchase property at a price above the current assessed
value that there could be an appeal by a taxing body? This can lead to tax
increases that can lead to higher escrow payments that a lender should take
into account. This is especially true if they are from another state where
there are no long outdated assessments.
Is there not an ethical obligation for someone involved in the
transaction to inform the buyer of the likelihood of an assessment appeal? The
costs in time, money and distress for the buyer in having to deal with the
appeal is certain to create animosity toward the appealing taxing body and the
system that has created this mess.

The state should just end, or
curtail appeals, by bringing Pennsylvania’s assessment practices in line with
other states. Most don’t let values go
beyond six years—and have a regular, predictable cycle. That was the argument by the governor when
the 2009 legislation was vetoed (“the long term solution to this problem is the
passage of legislation that would compel regular reassessments at the county
level”); that’s what the 2018 self-evaluation guide for counties noted when it
pointed out that inequitable tax burdens, reassessment costs from data
reconstruction and complications to mass-appraisal models can grow the longer
time passes between updates; it is what we have pointed out time and again,
notably the political reluctance that also grows the longer the time between
updates.

For close to a year there has
been a co-sponsorship memorandum in the General Assembly seeking to establish a
four-year reassessment cycle. The
memorandum notes that it is not uncommon for decades to pass between
revaluations and that inequities in tax burdens can develop.

Given that recent buyers who
feel they are singled out by taxing body appeals, that taxing bodies are trying
to do their part to ensure uniformity, that the evidence on the side that more
frequent assessments would be an overall positive, what are the chances that
Pennsylvania will adopt a reassessment cycle?
It is unknown since the proposal has yet to be introduced as a bill in
the General Assembly.

That’s correct: the proposal
has not yet even been introduced as legislation. What is the holdup? Is there pushback from county officials who
don’t want to conduct one, from taxpayers fearing spikes in tax bills if values
increase or from legislators who feel they are going to enact a tax shift that
will rid the state of property taxes and the need to reassess?

In the Allegheny County case,
if the county were on a four-year reassessment cycle that began in 2012, the
home would have been purchased in year three with an update coming in the
following year. Then there might have
been less impetus for a taxing body appeal and the buyers would know that all
values would be updated.

In the next two-and-a-half
years—the time the case spent in the courts—new values will have gone into
effect in Monroe, Delaware and Beaver counties, updating base years that are
31, 21 and 40 years, respectively. When
that time is up, what will the state’s assessment practices be?